Does Discharging a Mortgage Hurt Your Credit After Bankruptcy?
- After discharge, all discharged debts -- including mortgage debts -- should reflect a balance of zero. However, sometimes the mortgage lender does not report the discharge correctly and your credit report reflects that you are not current on your mortgage or that there is a balance on the mortgage. Check your credit to make sure that your discharged mortgage is reflected correctly on your credit reports and contact the credit bureaus if there is an error.
- If your mortgage is discharged via bankruptcy, the mortgage company cannot foreclose on your home. However, mortgage companies often require you to continue making payments on the home as a condition of agreeing to the discharge. If you find yourself in this situation, always reaffirm your mortgage rather than discharging it. If you make payments on a discharged mortgage, your mortgage lender can't report the payments because your balance is listed as zero. Thus, you will not see improvement to your credit from making mortgage payments on time.
- Reaffirming the mortgage means that you make a new mortgage agreement with your mortgage lender rather than discharging the debt outright. This is preferable to discharging the debt and continuing to make payments on it, as you have an agreement in writing and thus the mortgage lender can continue reporting your balance and reporting your payments to the credit bureaus. Make payments on time to help improve your credit.
- It may be difficult to refinance your mortgage after discharging it via bankruptcy. Since you don't have a positive credit history, you won't qualify for good rates for about two years. If you reaffirm the mortgage, you may have an easier time refinancing the home. You still won't get the best rates, but if you have been paying on your re-affirmed mortgage you will have sufficient credit to refinance your mortgage.